The dollar fell to a three-month low against the yen in Asia Monday, as players unwound yen-carry trade positions and as Japanese corporations began repatriating foreign-denominated earnings before fiscal year-end.
The dollar was trading at 115.60 yen at 2:50 p.m. (0550GMT) Monday, down from 116.75 yen late Friday in New York and from above 120 yen less than a week ago. The euro fell to US$1.3170 from US$1.3191.
The yen's surge appeared to be driven at least partly by traders unwinding yen-carry trades, which involve borrowing yen at Japan's ultra-low interest rates to buy assets with greater yields in other currencies. But with the yen's recent appreciation, the profits from those carry trades are eroded, prompting some investors to return yen loans.
"Yes, there was some unwinding of yen-carry trades among short-term players, but basically traders in Tokyo were selling the yen because foreign players wanted to buy it," said Tohru Sasaki, Chief FX Strategist with JP Morgan Chase Bank.
While the Bank of Japan raised interest rates last month to 0.5 percent, that is still far lower than rates in the U.S. or Europe, making the yen carry trade still an attractive strategy, analysts said.
Still, a decline in the yen carry trade could hurt liquidity worldwide, and that worried traders, too.
Market participants said that a surge in the Japanese currency in U.S. trading Friday triggered stop-loss buy orders early Monday, sending the dollar as low as 115.47 yen in morning trade, its lowest level since Dec. 8.
The yen was also sharply higher against the British pound, Australian dollar and New Zealand dollar currencies that had been beneficiaries of yen-carry trades, reports AP.
"Position unwinding pretty much finished up today," added Daisaku Ueno, a senior economist with Nomura Securities Co. in Tokyo. "What we were also seeing, though, was that Japanese corporations have begun repatriating foreign currency-denominated stock earnings ahead of the end of the fiscal year on March 31. This will continue to have an effect over the next two weeks or so."
The dollar was higher against other Asian currencies, rising to 44.46 Indian rupees from 44.11, to 48.875 Philippine pesos from 48.410, and to 951.5 South Korean won from 943.0.
The Americans came to realise that they would have to either leave the region or weaken their presence there. It is Russia that is filling the vacuum now